Tax Considerations When Selling an Apartment in Cyprus

In a previous article, we covered the taxation aspects of purchasing property and earning rental income abroad. Now, we’ll delve into the tax implications of selling a property in Cyprus, specifically focusing on capital gains tax (also known as appreciation tax), and the role of tax treaties.

When selling a property that has appreciated, you'll need to pay capital gains tax on the profit. The specific tax policy varies by country, and in Cyprus, the capital gains tax rate is 20%. However, Cyprus offers a range of deductions that can significantly reduce this amount, such as purchase tax, attorney’s fees, brokerage costs, advertising expenses, loan interest, and more. In some cases, even after substantial appreciation, there may be little or no tax liability.

Example:

Purchase price: €180,000

Sale price: €255,000

Capital gain: €75,000

Deductions:

Purchase tax: €3,800

Attorney’s fees: €2,500

Loan interest: €20,000

Indexation adjustment: €22,500

First apartment sale exemption: €17,000

Total deductions: €65,800

Capital gains tax: €1,840 (~2.5%)

As this example shows, even with a 40% profit, the actual capital gains tax paid can be very low in Cyprus.

Tax Treaties: What About Double Taxation?

To prevent double taxation, Israel has signed tax treaties with 53 countries. These treaties determine which country has the primary right to tax income and often allow taxpayers to benefit from paying the lower tax rate between the two countries.

Since Israel does not have a tax treaty with Cyprus, the first right to tax income is given to Cyprus, based on its local laws. After paying taxes in Cyprus, Israeli taxpayers need to check if their Israeli tax liability exceeds the amount paid abroad. If the Israeli tax is higher, they will pay the difference in Israel. However, since tax rates in Cyprus are generally lower than those in Israel, this situation is unlikely to result in additional taxes.

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